The financial crisis and the subsequent downturn have hit Suzlon badly and the pain continues to linger.
The company is buckling under high costs of acquisition and ever increasing working capital debt commitments even as it admits that sales are back-ended as customers’ pushback deliveries. Additionally, deal closures for future orders are also getting delayed as the appetite for debt funding of large projects continues to be low.
Supply guidance for FY10 have been revised downwards to 1,900-2,100 MW (megawatts) for the full year from 2,400-2,600 MW given earlier (Suzlon had reported a consolidated order book of 2,732 MW at the end of Q1FY10).
Troubled operations
Consolidated revenues were down over 30% y-o-y to Rs 4,793 crore but were 15% higher over Q1FY10. Cost control measures have seen expenses coming down significantly (28% y-o-y) and gross profit for the first half of this year, at Rs 2.06 crore per MW, was marginally better than H1FY09 (Rs 1.9 crore per MW).
However, EBITDA dipped significantly (down 72% y-o-y) to Rs 121 crore, but has shown a sequential growth of 15% over Q1FY10. The wind business made a loss of Rs 322 crore at the EBITDA level, hurt by high fixed costs in a season of slow sales.
The interest burden was up 35% y-o-y and combined with a higher depreciation (up 48% y-o-y) dragged the bottomline lower to a loss of Rs 355.5 crore. The breakeven at Profit Before Tax (PBT) level is about 2,000 MW for FY10 – which may be tough to achieve given the downward revision in supply guidance mentioned earlier.
Balance-sheet worries persist
As of September 2009, Suzlon had net debt of Rs 12,525 crore, of which about Rs 3,097 crore was due to acquisition, Rs 2,300 was on account of FCCBs and Rs 1,143 was for capital expenditure. The net debt to equity ratio was 1.61 as of September 2009.
A Rs 1,175-crore fund infusion from promoters and an additional debt of Rs 5,758 crore of loan helped ease immediate working capital worries but the situation remains tricky.
The company is trying to improve its debt profile through refinancing options and is also planning a strategic or complete stake sale in Hansen Transmissions to reduce its absolute debt. The quarter saw an infusion of $202 million through a GDR issue of $108 million and a $94 million convertible bond issue.
A Nomura research report observed that Suzlon runs a risk of not meeting its debt covenants adding that the penalty of not meeting the covenants was not likely to be severe resulting only in a slight increase in the interest rate as a penalty. It quoted company sources as believing that since they had never defaulted on any of their payments, the breaking of covenants would not be treated too harshly by creditors.
With crude oil prices moving up and more supportive noises from global policymakers for renewable energy sources, according to Nomura, the outlook seems to be brightening for Suzlon. However, it is doubtful that this will translate to additional revenues in the immediate future.
The company’s stock has taken a beating in the last few days and is down over 17% since declaring its results on October 31, 2009. The revised guidance and shaky outlook has seen Nomura downgrade earnings estimates by 112% (a loss of 0.9 per share) and 37% (EPS of 5.9) for FY10 and FY11. The Suzlon stock closed at Rs 55.15 on November 4, and trades at an effective P/E valuation of 9.3 times Nomura's FY11 EPS estimate.
